Intel: Foundry business is in oversupply trouble

LONDON – The world's leading foundries are facing difficult times due to the creation of too much manufacturing capacity, according to Paul Otellini, president and CEO of Intel Corp., the world's leading chip maker.

"I think the foundry business is in big trouble over the next few years," Otellini told analysts at a conference here Thursday (Feb. 17) and accessed by EE Times by a telephone replay. He put it down to "significant overcapacity" mainly due to attempts to grab market share by new player Globalfoundries Inc. (Sunnyvale, Calif.). On Friday in Hillsboro, Oregon, Otellini said Intel would build a wafer fab in Arizona and create 4,000 U.S. jobs in 2011.

However, talk of overcapacity does not chime with the view of some analysts, such as Malcolm Penn, founder of Future Horizons (Sevenoaks, England). Penn has heralded the coming of a fab-tight era, due to a lack of spending on manufacturing capacity by both IDMs and foundries over the last couple of years.

Some have said that the chip world is rapidly collapsing to a handful of leading-edge chip makers most of whom will have some foundry interest. Intel and Samsung still make the majority of chips for sale under their own brand while Taiwan Semiconductor Manufacturing Co. Ltd. (Hsinchu, Taiwan) and Globalfoundries are pure-play foundries.

Nonetheless Otellini does not seem eager to be joining the foundry crowd any time soon. "Foundries make money not on the leading edge but on the trailing edge, with long running products," he said.

"Leading-edge capacity excess, driven by Globalfoundries' expansion primarily, means pricing is going to come down. As leading-edge pricing comes down, so does the trailing-edge [pricing], hollowing out the business. That means real trouble for Globalfoundries and TSMC over the next few years," Otellini predicted. He conceded that, with its memory and logic operations alongside foundry, Samsung was a different case.

Otellini said chip building was all about the efficiency of the development and manufacturing operations and that Intel's was second to none.

"Our competitors have to take what TSMC and Globalfoundries offer them," indicating that Intel liked having control of its manufacturing choices. But Otellini also glided over the collorary of his prediction of price erosion at the foundries; that fabless chip companies will be getting good deals on both leading- and trailing-edge silicon making those companies, the likes of Qualcomm, Broadcom and Nvidia, better able to compete with Intel.

Nonetheless, Otellini's conclusion was that Intel and Samsung would increasingly pull away from the manufacturing pack, particularly Globalfoundries and TSMC.

I am confused by this. I think Otellini is hoping for a miracle in mobile. Tablets and mobile phones are a huge growth opportunity for foundries, yet Intel does next to nothing in these markets. They recently lost the Nokia Meego partnership and Atom is not showing up in any winning tablets. To make matters worse, MS is going to release a Windows OS on ARM. Where does this leave Intel if tablets replace the consumer notebook?
Sorry Paul, I just don't buy it. Also I think Intel also "makes" their money on trailing edge technology. It's just accounting semantics. New technology doesn't start to pay for itself until it is in full high volume production, and when that happens, the next gen tech is starting to ramp up.

I have heard so many similar comments in the past from companies like TI, Motorola, IBM, ..etc. What happens to these guys? Otellini is either too arrogant or naive. Sorry to see Intel has such a learder. Do not worry, TSMC will continue to be the winner with huge profit.
Foundry Guru

TSMC will continue to be the winner with huge profit.--Buy an external IP. synthesize products. Measured by the generation of factory-built sealed pattern, so that the semiconductor gradually becoming less and less profit, after the TSMC 45 shattered the myth of high yield, 40NM, YELD still 40%

TSMC is getting behind the big INTEL, TSMC 28HP and INTEL 22 with mass production, and to know the performance behind TSMC INTEL generation, plus the amount of time to produce one generation behind, behind two generations together, and. letter to get eternal life TSMC ? TSMCYY actually very successful, so much IDM FAB-LITE, and can be effective getting worse. . . . . . "We are discussing how best to use external resources. " Chen Weiming, president of TI Asia, "Global Entrepreneur " said. OEM is the highest guiding principle of the internal Texas Instruments, which dropped after the order of 45 nm process, the large customers already had Sun Microelectronics (Sun Micro) 45 nm chip manufacturing orders to TSMC. ... make good use of external resources TI baseband market collapse, OMAP in decline

TSMC is getting behind the big INTEL, TSMC 28HP and INTEL 22 with mass production, and to know the performance behind TSMC INTEL generation, plus the amount of time to produce one generation behind, behind two generations together, and. letter to get eternal life TSMC ? TSMCYY actually very successful, so much IDM FAB-LITE, and can be effective getting worse. . . . . . "We are discussing how best to use external resources. " Chen Weiming, president of TI Asia, "Global Entrepreneur " said. OEM is the highest guiding principle of the internal Texas Instruments, which dropped after the order of 45 nm process, the large customers already had Sun Microelectronics (Sun Micro) 45 nm chip manufacturing orders to TSMC. ... make good use of external resources TI baseband market collapse, OMAP in decline